- 36 -
include in that "Income per return" figure the $49,525 of 1988
White Star compensation that petitioners reported on line four of
their 1988 Schedule C as "Other income". Consequently, respon-
dent determined that for 1988 petitioners had $228,119 of unre-
ported gross receipts of Design Consultants.
Respondent also determined in the notice that petitioners
are entitled to certain deductions for 1987 and 1988 that they
did not claim in their returns for those years and that petition-
ers are not entitled to certain of the cost of goods sold and
deductions that they claimed in their 1986, 1987, and 1988
returns totaling $102,980, $102,705, and $146,641, respectively.
With respect to respondent's determinations disallowing, inter
alia, certain of the cost of goods sold and deductions that
petitioners claimed, respondent's representatives obtained from
petitioners and reviewed oral and/or written information regard-
ing at least certain of those items about which respondent had
questions.
Petitioners' Criminal Trial and Conviction
On April 14, 1993, a grand jury indicted petitioners on
three counts of violating section 7201 by willfully attempting to
evade and defeat a large part of the income tax due and owing by
them to the United States for 1986, 1987, and 1988. Petitioners
were tried in the U.S. District Court for the District of New
Hampshire (District Court) on January 24, 1994, and a jury found
petitioners guilty of violating section 7201 for 1987 and acquit-
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